MACD Analysis Signals

Developed by Gerald Appel,

The MA(Moving Average) Convergence/Divergence is one of the simplest, reliable, and most often used indicators.

It is a momentum oscillator & also a trend following trading indicator.

Construction

The construction of this technical indicator calculates difference between 2 moving averages and then plots that as the 'Fast' line: the second 'Signal' line is then calculated and derived from the 'Fast' line & then drawn on the same panel as the 'Fast' line.

'Fast' line - Blue Line
'Signal' line - Red Line

The 'standard' MACD values for the 'Fast' line is a 12-period exponential MA and a 26-period exponential MA and a 9-period exponential moving applied to the fast-line, this plots 'Signal' line.

Fast-line = difference between 12 & 26 exponential MAs moving averages
Signal Line = Moving Average of this difference of 9-periods

Momentum Oscillator Technical Indicator s - MACD for Scalping

FX Analysis and How to Generate Trading Signals

The MACD is commonly used as a trend following indicator and works most efficiently when interpreting and analyzing trending market movements. three common techniques of using MACD to generate trade signals are:

Forex Cross overs Signals:

Fast-line/Signal-line Crossover:

A buy trade signal is derived & generated when Fast Line crosses above SignalLine
A sell trading signal is derived/generated when the FastLine crosses below SignalLine.

However, in a strong trending market this signal gives a lot of whipsaw fakeouts, the best cross over to use would thus be the Zero Line Crossover Signal that's less prone to whipsaw fakeouts.

Zero Line Crossover Signals:

When the Fast Line crosses above zero centerline a buy trade signal is generated.
when the FastLine crosses below zero center line a sell trading signal is generated.

Divergence Trading:

Looking for divergences between the MACD & price can prove to be very effective in spotting the potential reversal and/or trend continuation points in price movement. There 2 types of divergence-setups:

Classic Divergence Trading Setup Signals
Hidden Divergence Setup Signals

Over-bought/Oversold Conditions:

MACD is also used to spot potential over-bought/over-sold conditions in price action movements.

These levels and regions are derived & generated if the shorter MACD Lines separate significantly from the median, this is an indication that price action is over-extending and it'll soon return to the more realistic levels.

MACD & MA Cross-over System

This indicator can be combined with other indicators to form a strategy. A good combination with the Moving Average cross-over system. A signal is derived/generated when both give a signal in same direction.

MACD - Forex MACD Technical Indicator

Analysis in FX Trading

Learn More Tutorials & Courses:

Trade Forex Trading